Disney inks exclusive deal with Netflix

Multi-year licensing pact includes live-action and animated features

Netflix has opened up its wallet to lock down a new digital streaming deal with the Walt Disney Co. that gives it exclusive access to new and catalog titles from the Mouse House during the pay TV window in the U.S. Disney’s existing pact with Starz wraps up at the end of 2015.

Although financial terms of the multi-year agreement were not disclosed, sources close to the companies say Starz had ponied up around $100 million to Disney. Netflix is said to be spending $200 million, with some analysts saying that figure comes closer to $300 million.

Netflix’s largesse further raises the stakes for rights to high-end film and TV content in a marketplace where traditional players are increasingly competing with deep-pocketed digital upstarts. News of the pact drove Netflix shares up 14%, or $10.65, to close at $86.65. The spike was notable given that some Wall Streeters have been questioning whether Netflix is becoming overextended in its content licensing commitments.

The Disney pact will significantly increase Netflix’s family offerings — especially for its “Netflix Kids” and “Just for Kids” sections on its site and mobile app, which offers up content for kids under 12. So far, the service has focused on characters like SpongeBob SquarePants, Dora the Explorer and Curious George.

Netflix had already enticed DreamWorks Animation to end its pay TV deal with HBO last year in order to move its films over to the SVOD service.

New Mouse House deal includes titles from Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios and Disneynature. It begins with theatrical releases in 2016.

Also included are Disney direct-to-video releases, to be made available on Netflix starting in 2013. Separately, Disney and Netflix will make catalog titles such as “Dumbo,” “Pocahontas” and “Alice in Wonderland” available to Netflix subs in the U.S.

Disney’s content will be available for instant viewing on multiple platforms, including TVs, tablets, computers and mobile phones.

“Disney and Netflix have shared a long and mutually beneficial relationship, and this deal will bring to our subscribers, in the first pay TV window, some of the highest-quality, most imaginative family films being made today,” said Ted Sarandos, chief content officer at Netflix. “It’s a bold leap forward for Internet television, and we are incredibly pleased and proud this iconic family brand is teaming with Netflix to make it happen.”

Netflix has more than 30 million members in 40 countries who watch more than 1 billion hours of TV shows and movies per month. Company, which charges $8 a month for unlimited streaming, consistently accounts for 33% of online traffic during peak periods, followed by Amazon (1.8%), Hulu (1.4%) and HBO Go (0.5%).

As streaming services look to build their libraries, studios are benefitting financially from the demand for content. Disney is said to have eschewed talks with more traditional pay TV players like HBO or Showtime and sought a heftier increase in license fees for its films from digital players eager to compete for movie rights and willing to dig deep into their pockets.

Last month, Disney chief Bob Iger was upbeat on the opportunities that growing digital platforms are providing to studios. “The opportunity to monetize owned IP is only growing because of new technology,” Iger said during a conference call with analysts last month to discuss fiscal-year results. “We will see growth in revenue and bottom line. It’s an exciting time for intellectual property owners.”

Disney is the latest studio to forgo traditional pay TV pacts for Netflix, after Relativity Media, FilmDistrict and Open Road brokered similar deals.

Unclear is whether such SVOD deals will further impact traditional DVD and Blu-ray disc sales.

“With it more than clear that the DVD slide is secular, the embrace of SVOD as a pay TV replacement is somewhat of an acknowledgment that the need to protect the DVD window no longer makes as much sense as it once did,” Stifel Nicolaus analysts said in a report.

In a statement, Starz said execs made the decision not to renew its output pact with the Mouse House so it could invest more in original series. It already produces the “Spartacus” franchise, “Magic City” and the upcoming “Da Vinci’s Demons.” The pay cabler’s goal is to have 50-60 hours of original series programming by 2015. The loss of Disney pics, however, comes at a tough time for Starz as it is preparing to be spun off from parent company Liberty Media.

“Starz will continue to be the exclusive home of all Disney movies, including the Lucasfilm, Marvel and Pixar releases, and their accompanying digital streaming rights, into 2017,” Starz said. “Our decision not to extend the agreement for Disney output past that time allows us the opportunity to implement our plan to dramatically ramp up our investment in exclusive, premium-quality original series which will best meet the needs of our distributors and subscribers.”